On this episode, Zach Lemaster, the founder of Rent to Retirement, shares his journey from being a healthcare professional to a successful real estate investor. He explains how his company helps investors own turnkey properties in the best markets across the country. Zach discusses the process of investing out of state and building a team in different markets. He emphasizes the importance of cash flow and appreciation in real estate investing and shares his strategy for early retirement. Zach also highlights the tax benefits of real estate and how investors can maximize them.

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What’s Covered In This Episode

  • In this episode we’ll cover:
    • Rent to Retirement helps investors own turnkey properties in the best markets across the country.
    • Investing out of state requires building a team and conducting thorough research on markets and properties.
    • Cash flow and appreciation are both important factors to consider in real estate investing.
    • Maximizing tax benefits is crucial for building wealth through real estate.
    • Real estate offers more tax benefits than any other asset class. Cost segregation allows for the acceleration of depreciation and can significantly lower tax liability.
    • Qualifying as a real estate professional can enhance the benefits of cost segregation.
    • Passive losses can be offset against active income up to $28,000 for individuals earning $150,000 or less.
    • Short-term rental properties can be used to self-manage and take advantage of accelerated depreciation without being a real estate professional.
    • Creative financing options, such as low down payment loans and interest rate buydowns, can help investors reduce tax liability and maximize cash flow.

Connect with Zach: 

renttoretirement.com https://www.instagram.com/renttoretirementinvest/?hl=en

Resources 

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Read The Transcript Here

Trevor Oldham (00:04.309)
Hey everyone, welcome back to the REI Marketing Secrets podcast. Today on the show, we have Zach Leemaster. Zach, for our audience out there who’s just learning about yourself and your company for the very first time. Do you mind just going into a little bit about your background and what your company does?

Zach Lemaster (00:20.65)
Yeah, absolutely. And thanks so much for having me on Trevor. I’m very excited to be here. Um, so our company rent to retirement is, uh, the nation’s leading turnkey investment company, essentially what we do is identify the best markets throughout the country where we see opportunity and make turnkey properties available to, to our investors where they can actually physically own properties across the nation and some of the best markets where we’re handling everything for them, this is.

You know, management, assisting them with financing, building a strategy to expand their portfolio. So that’s essentially what our company does. Just to give you a little background on myself. So like many of us that find ourselves full-time real estate investors, I didn’t start here. Uh, my background is in healthcare. My wife and I are both optometrists by education. Um, we went to school in Oregon. That’s where we met. I was on air force scholarship, uh, for school. So joined the air force as a captain for seven years. That’s where I started investing in real estate. First house was a house hack duplex lives in half run out the other half.

Uh, fell in love with real estate, very tangible. And from there, I just kept buying rental real estate. And that was locally where we started out because that’s what I knew and felt comfortable with, but there was a pivotable moment in that, uh, that really changed the trajectory of our lives, uh, in general, but certainly our business and our investing trajectory. And that’s when we decided to learn how to invest out of state, uh, Trevor. And this was very powerful because we were successful investors locally. Um, but once we made the U S our entire landscape and, and learned how to identify some markets that had.

You know, more affordability as far as purchase price and entry point, better returns, better cashflow, better appreciation, um, and just better fit our goals. We were able to expand our portfolio across the country and that it took many years to do that. That wasn’t easy. We made a lot of mistakes, but we built a system and process around that where we were able to eventually retire ourselves from our, uh, professional career paths in, in healthcare. And that caught a lot of people’s attention.

Um, where we had friends and family and colleagues that were coming to us saying, Hey, we see what you’re doing in real estate. That seems very interesting. Uh, can you help us? Right? Can we invest with you? Can you show us how to invest? Uh, can, you know, give you money, whatever the case is. I mean, they were looking for resources to invest. Maybe their local market was too expensive or they needed some handholding, whatever the case is, and that was the birthplace of rental retirement. So fast forward 10 years later, where we’re at now, you know, we’re, we work nationwide. Uh, we really focus on like the Midwest and Southeast, especially Southeast and

Zach Lemaster (02:37.09)
build to rent new construction, single family, small multifamily, where we can offer investors the option to buy those properties and make smart cashflow decisions, uh, where they’re actually a hundred percent owner of the property where we handle everything for them. And you know, the rest is history. So.

Trevor Oldham (02:54.649)
What was that process like going out and investing on a stake? So I think to myself where, one, when I was living in Massachusetts, the numbers just didn’t make sense. It just, they just weren’t working out just how expensive the properties were. But now I’m in New York and that’s where I live now. And the numbers do make sense. I could go out and I could buy, I don’t know, I think I saw like a $250,000 property, make a cash flow, it would hit the 1% rule. So $2,500, $3,000 a month, but I don’t like New York just.

given the blue state and given the thing, they’re like trying to pass a new law that’s gonna hurt landlords even more. So I wouldn’t wanna invest here, just I think it’s too much red tape. So for me, I would wanna go out and I would wanna invest like you mentioned, the states like the Midwest, maybe the Southwest, maybe Southeast, the states that are more landlord friendly. But how did you like put together that process? How did you get that boots on the ground team? Because let’s say you are, like you mentioned you’re in Oregon and you decide, hey, I wanna go out and I wanna invest in.

Ohio, maybe Cleveland, Ohio, maybe the suburbs of Cleveland, maybe Toledo, Akron, wherever. How did you build that process out and how did you get that team ready to go to one, find the properties and then two, to build the property management team? Because I would imagine you weren’t going to be managing it yourself all the way across the coast.

Zach Lemaster (04:07.914)
Yeah, I mean, uh, it was a lot of mistakes and, and tenacity, right. Uh, but actually our first forte into investing out of state was actually turnkey, uh, and it wasn’t a good experience. Um, I think many people, when they, they look to invest out of state, they, they learn about the concept of turnkey. And this is a buzzword out there. Um, and as we were talking before the show, there’s been some turnkey, um, operators out there, like any business, especially in real estate that, you know, maybe didn’t have.

good experiences for people. Um, and we were, we were one of those. We bought South side, Chicago, um, houses, uh, duplexes called them flats, like two flats and three flats. Um, basically they were tiered, um, multifamily, um, and they were in D or possibly F class type of locations, great renovation by the provider, um, but just really bad experience on the management side, we lost money on all of those and ended up liquidating them.

But that was our first experience investing out of state and it wasn’t good. And so from that, we decided that, Hey, we like the idea of making the USR landscape and identifying markets where we get better returns. Um, and to diversify and scale up portfolio quicker, but we need to build our own teams from the ground up, right? Like we need to do this. Um, and it, it was a lot of trial and error, just like with anything. So finding, I mean, we have a, we have a systematic approach now that we’ve built for many years.

Um, but in the very beginning it was, it was difficult because you don’t know a market, you don’t maybe don’t know which market to identify. There’s a lot of different markets to look at. And then it’s like, how do you build the team in those areas? And you need key people, right? You need to keep broker to help you find the deals and you keep property management. You need a lender that’s going to actually be able to finance in those areas. Um, right. Insurance. These are all things that we just basically had to piece together slowly over time, networking with the right people, asking for referrals at the end of the day, Trevor is just trial and error, right? Like.

finding a good contractor in these areas. Certainly we did research and got recommendations from people and local brokers and real estate groups, but at the end of the day, we just had to try them out, right? And for the same thing for property management, uh, where, you know, you sometimes have to go through 10 or 20 bad ones to find a good one. And then you, you know, you really partner with, with the good one. Now our process, when we open up a new market is, is much more streamlined. Like we have a whole thorough vetting process, our company, obviously, um,

Zach Lemaster (06:27.602)
Has the reputation and the ability to go out and leverage current existing relationships, and sometimes even created teams from the ground up, or we’ve been able to partner with the local management team to expand on their current operations and add best practices from what we’ve seen in other markets. So it’s been a long journey, but certainly we, we have some scars from our first forte into investing out of state.

Trevor Oldham (06:50.877)
Yeah, definitely. I feel that even just going out there and trying to build a company, you could hire like folks that you think are going to be phenomenal. And then they just don’t turn out to be that way. Even, even like my company, I’ve gotten good recommendations for employees and you hire them and it just, it doesn’t work out for a reason. Like you mentioned, it’s, it’s a lot of trial and error. It’s a lot of pain points to, to get to that point. But I’m, I like what you mentioned about turnkey, you know, it’s been thrown around the industry a little bit and

I think where I’m getting at with this is trying to think like how turnkey is the operation. What I mean by that is I’d say I’m a passive investor like I am and I’m investing in a couple of deals. I still got to be active to a degree where I still got to like vet the deals. I got to look at the deals, make sure it makes sense for, you know, if I’m a cash flow investor and it’s a pure equity play, appreciation play, then that deal is not going to make sense for me. But when it comes to the turnkey aspect of it for your investors, when you’re like talking to them, is it, you know, are you going through like what they’re looking to invest in the different markets that they’re…

that they want to go through? Or is it like, hey, we have these properties, let us know what you think. And then, so I guess that’s the first question. And then the second one would be from the turnkey aspect of it, would it be like, hey, we’re going to cover our property management teams in place, anything under $500 in expense, we’re going to go out and do it. Let’s say the tenant calls and we have to fix a light bulb or we have to, just simple things like that. Now we need to replace the stove or the dishwasher, whatever it may be. Obviously that’s going to be a bigger expense and we’re going to have to get in contact.

get in contact with you to get your approval on that expense. It’s just curious what it looks like, what someone could expect when talking to your company and then when working with your company.

Zach Lemaster (08:24.822)
Certainly. And so we’ll, I mean, we, we definitely have procedures in place on, you know, management, um, like you mentioned in your, your second question in your example, uh, you know, like expense thresholds and things like this, but just backing up for a sec. I mean the whole, and then we’ll walk through the client journey too. I think answer both questions thoroughly, but the, you know, this whole concept of passive income is, is interesting. People love the idea, uh, and myself included of having an asset that works for you, which real estate can be.

Um, you know, but I, I really think there is no true, there’s no such thing as true passive income out there because you always need to be managing your money, right? Whether you’re investing in a syndication deal where you’re giving, you’re actually turning over control and money to someone. Hopefully they, they are managing the project appropriately. You still need to vet them appropriately on the front end. You do need to make sure that they all be, you have limited control. You still need to make sure they’re performing well, right. And doing their accounting accurately.

And you also need to make sure that you’re setting up your own financial situation, um, both legally and just the structure and strategy financially internally. So you, you always need to be conscious and manage your money to some degree. Now in turn, in the turnkey space, you are still physically owning rental real estate, right? You are a hundred percent the owner. And so you’re the one taking the risk, going in the real estate. You’re the one taking the financing. You’re the owner of the property. And even though we have management in place for each one of these properties, like sometimes you have to manage your property manager. A lot of that is just coaching.

and educating people on how to do that appropriately, even if we have all the systems set up in place. But this is still very much property ownership. And I do think that is, you know, if that’s something you wanna do, actually own physical properties, I think this is definitely on the more passive end of the spectrum, because you’re not managing the properties. We have a very systematic approach to help you identify which markets and properties meet your goals. We have our fundamental criteria, right? We wanna be, to your earlier point about New York, we wanna be in areas that have landlord friendly legislation.

low taxes, future population, economic growth. So we’re in the path of progress for appreciation and rents and home prices. We wanna be in areas that have a diversity of industries. There’s 7.2, there’s a deficit of 7.2 million houses in the U.S. We wanna be in areas where we have an undersupply of housing. So all these things are important to be conscious about where to invest, but the client journey essentially is, if you’re interested in investing out of state or owning a real estate, expanding your portfolio, whatever the case is, you’re thinking about turnkey. The first thing we wanna do is have a consultation with you to learn about.

Zach Lemaster (10:45.858)
like your goals and your strategy. Because one person may be more focused on equity growth, as you mentioned, and appreciation. We still have our fundamentals for cashflow that every deal should adhere to. But there’s certainly different markets that might be better suited for the investor based on their goals, criteria, timeline, resources available. And then we wanna work through a strategy to make sure that you’re maximizing your tax benefits, right? There’s different creative financing options available that may help to expedite your goals. So it’s much more beyond just

Trevor Oldham (10:51.417)
Thank you.

Zach Lemaster (11:15.03)
buying, just buying a marketplace to buy turnkey and properties is about the team you’re working with to build out that strategy and help to expedite your ultimate goals. But the first thing we do is jump on a consultation with you. We don’t charge investors anything. We make our money through building and selling houses. Um, the, we want to make sure that we spend ample time with you to understand what you’re trying to accomplish. And then we look at kind of the, the high level structure, what type of financing makes the most sense, what lenders are you in touch with?

which markets make the most sense for you based on price points, based on your goals. And how are we structuring the tax strategy to allow you to scale quicker, right? Because we all run out of money and down payments are like, you know, capital is the most limiting factor. So you can be a creative investor where, you know, maybe you’re using one of these loans we have where you put 5% down or possibly no money down to get into a deal. And you’re maximizing the tax benefits of that, that might help to expedite your goals, invest the retirement vehicle, something like that. So hopefully I answered your questions. There’s a little bit all over the place. I think on the.

how turnkey this is, I mean, and how passive it can be. It’s very involved in the front end. You need to, and I think you should be involved, right? You need to understand what your goals and your strategy are. You need to apply for a loan. You need to identify the property, go through the transaction. This is normal closing process, appraisals, inspection, et cetera, but the idea is that once you have a plan, you execute that plan, you buy the properties, you’re set up with management, you know, assuming management’s doing their job, which they should be doing.

Um, you know, you should receive passive income on a monthly basis, but it is a good idea to check in with your management, especially in those first, like 90 days, build good rapport, build good expectations, understand what their process is, and then focus on the bigger picture things, which is how you scale to accomplish your goals.

Trevor Oldham (12:57.245)
Yeah, I think there’s just so much there. I want to dive in. And I think the one area where I want to go right now is, as you mentioned, I know I talked about it a little bit before, but you have your equity play and you have your more of your cashflow play. And touching back to your story, in my mind I’m just thinking theoretically, just make it simple 25,000, let’s say someone invested, you know, in a cheaper home, let’s say the home was 125,000, they’re maybe going more your Midwest, maybe more of your C-class property, 25,000, let’s say they got an 8% return.

make it easy to a hundred bucks a month, whatever the numbers may come out. When it came to you working through and going through and realizing like, hey, like I can actually have the option to choose early retirement from investing in these properties. How did you sort of build your strategy? Was it like, hey, if I go out and buy, you know, 15 to 20 of these properties, cashflow and $200 each, I know I’m gonna have the pay down over time. Maybe I put 15 year mortgages on them instead of 30 years.

those numbers work for me or I just keep them at 30 years and I know within 30 years, I’m going to have all those properties paid off and get that additional cashflow. Curious how like you worked your strategy out, you know, from doing from the turnkey’s perspective to helping you achieve that early retirement.

Zach Lemaster (14:08.858)
It’s been an evolution over time and evolution about how we think about money, how we think about, um, just investing in general, what types of properties we invest in, um, and where we’re personally at financially. And I think a lot of people go through this, this same thought process early on in investing. The most, the thing that most investors are conscious of is, is cashflow, especially if they have this idea of like early retirement or financial independence or whatever the case is, you can kind of reverse engineer to your point.

reverse engineer how many, how many properties you need to reach X amount of dollars, most common number we hear from people is $10,000 a month, probably just cause that’s a round number, right? So the beautiful thing with cash cashflow at $10,000 a month with rental properties is if you, especially if you have leverage on those, that’s probably, that’s probably tax free.

which would be the equivalent of 16, $17,000 a month or whatever of earned income. But essentially the first goal like financial independence, a lot of people look to achieve is just covering their expenses, three, $5,000 a month, whatever that is. And it’s just buying properties. And that was very much where we started as well. It’s just let’s buy as many properties. And I’ve been investing for about 15 years now, Trevor, and I’ve never.

taken a year off. There’s never been one year that I haven’t bought properties, regardless of interest rates, market cycle, COVID, whatever the case is, because we’ve always invested for fundamentals and we know that real estate will perform over, over the longterm, right? Things compound. And it’s a cool point when you get to where your properties, you’re buying properties, either through reinvesting your cashflow or 1031 exchanging. But the first point we got to was, okay, we covered our expenses.

Great, but like we want to do more and, and we were becoming more savvy investors. We started investing out of state. Um, and we were always looking at cashflow. I think early on it was always like, how do we maximize the cashflow on the properties? As we own real estate over time, we began to see that actually wealth is built more so in being in growth areas. For example, I was stationed in North Dakota, uh, in the air force. And that’s where we bought some of our first properties. We can cashflow well in North Dakota, but it’s not a real appreciating market, at least in the areas we were at.

Trevor Oldham (15:56.758)
Mm-hmm.

Zach Lemaster (16:07.35)
And so we, we invested more in the Southeast specifically, new construction where after two to four years, I mean, those houses, some of them doubled. Uh, but they appreciated extremely well where it’s like, Hey, all of a sudden we can take out an equity line of credit. We can do cash out refinance. We can sell them 1031 exchange those and just like double our portfolio without having to inject more capital. And so the light bulb went off where it’s like, maybe we need to be a little bit more conscious of.

growth areas and this is the direction we personally went in our investing in the and what we try to be very conscious of with our business model as well. And that allowed us to replace our active income as doctors, you know, and within not it didn’t take a lifetime. It didn’t happen overnight, but within a relatively short period of time of intentional investing, we were able to do that through scaling our portfolio. Now at the point where we’re at, when we own a large eight figure portfolio personally, that cash flows over seven figures annually net.

And the biggest conscious thing that we focus on is tax benefits, right? Every property we buy, we run accelerated depreciation on. We look at doing 1031 exchanges and all of those to, to pass those deferred taxes forward, we do things like deferred sales trusts and just a lot of different creative tax strategies, because we know time value of money, if we can defer taxes, that’s money, more money we have today.

Trevor Oldham (17:03.692)
Mm-hmm.

Zach Lemaster (17:24.802)
that then we can reinvest and actually earn an income on versus giving it to uncle Sam. It’s timely that we’re having this podcast on tax week, you know, but that’s our main strategy now is focusing on appreciating. This is just personally appreciating areas where we can maximize tax benefits, roll that money forward and just continue to grow that way. So it’s been an evolution over time as our net worth is growing and the more savvy investors that we’ve become.

Trevor Oldham (17:34.681)
Thanks.

Trevor Oldham (17:50.409)
Yeah, that’s a super smart strategy thinking of those areas where like in my area, I know I could cash flow But if I buy property for 300,000 maybe in 10 years, it might be 320,000 325,000 But it hits that 1% role, but it’s not gonna it’s not gonna really appreciate where my family in Massachusetts like my dad I think he bought his house Five to seven years ago now for you know, 365,000 now It’s worth like 650,000 and he you know, he basically only redid the kitchen but it’s just because the area and where they live is just

exploding with growth opportunities. So he gets that ton of that appreciation on that aspect of it. But I want to dive into a little bit further into the tax benefits and just get some clarification for our audience. Because that’s probably the number one reason I really enjoy investing in real estate. I think last year, all the income I made for my passive investments, every one of them, they went through, they had the cost segregation study, the depreciation came on. So even ones that I was making like 200 bucks a month on.

you know, I got my tax return shows a net loss of like $100. Even though I, I made $2,400, I’m able to take that money on that particular investment and, and save it to reinvest into my next deal. I wish I had that real estate professional tax status so I could claim, you know, deduct that extra a hundred bucks, but neither here nor there. But yeah, I love for you just to go into like how you’ve been able to use like that depreciation benefit. Like you mentioned that accelerated depreciation to really offset some of your taxes, because I think so many people get upset and I

you know, whether you like him or hate him, but you could think of like Donald Trump and folks, you know, with him, like he just has, he just uses this depreciation on his property. So it really lowers his income. And then obviously he has the real estate professional tax status. So people get upset because he’s not paying that much in taxes, but it’s just written in the tax code. You know, I could use it. You could obviously you’re using it. So, but for our audience out there, I’d love for you just to go a little bit further into how you’ve been able to benefit from using some of the different tax strategies, you know, to really

offset some of these taxes or just push them down the road or you mentioned like that 1031 exchange where you just keep putting it off and hopefully never have to pay taxes on those particular properties. Just how investing in real estate has really benefited you from a tax wise because you could think a lot of our audience is those high income professionals. So folks that are earning 200k plus a year, obviously in a W-2, they’re just getting hammered with taxes. Obviously, if they get a bonus, they’re getting crushed with taxes there. They might get a 50k bonus and they get 15k.

Trevor Oldham (20:12.141)
20k after it because Uncle Sam Dips is talking into it. So yeah, just curious from the tax benefits and how you’ve really been able to benefit from it.

Zach Lemaster (20:20.782)
Certainly. And if anyone listens to me ever on podcasts or YouTube channel or whatever, this is the point that I’m extremely passionate about because I feel like it makes the biggest impact on your financial scenario. Real estate offers more tax benefits than any other asset class and this is what the wealthy people are doing. They’re using leverage, they’re buying assets. Think about this for a big picture and then I’ll answer your question. But real estate, it’s an asset where you can…

borrow someone’s money, either bank or private lender, you can buy an asset that you have 100% control ownership and receive 100% of the benefits from income and taxes from that someone else pays off the loan for you, i.e. the tenant, right? So this is what the wealthy do. They use other people’s money, they acquire assets, and then they maximize their tax benefits and they reinvest their interest, they reinvest the equity and they continue to.

row and amass these large portfolios. And when you look at it from that perspective, like, you know, most people that are building mass wealth in real estate, yes, cashflow is a good byproduct to cover the investment, but they are more focused on the growth versus the actual cash flow. But these are some of the strategies that we’ve employed in our personal lives and we help investors work with on an individual basis. So I’ll talk about my, my scenario, but I also want to talk about from some of our like use some examples from some of our investors. So.

One of the biggest things, the benefits right now is as we, since we’re talking about is cost segregation, right? This is basically where you can accelerate a portion of the depreciation to take in year one. Uh, and anyone can do this. If you are the big benefit though, where it makes a big impact is if you can qualify as a real estate professional, which there’s hours associated with this. And you know, there’s things, I mean, if you’re a full-time employed person and you’re beginning a new real estate investor, maybe you can qualify for it, but maybe you have a spouse that works part time or doesn’t work and they could qualify for that and you combine.

Combine that when you file your taxes and still get those benefits. I mean, these are all strategically things we work with individual clients, but that’s one of the biggest and most impactful things you can do is accelerate depreciation. And where that becomes powerful is where you can take this passive loss and offset against your active income to your W-2 job or all sorts of income. It just lowers your tax basis. So if you buy a million dollar property, our cost segregation studies, which are an engineer report showing all the things of five and 15 year life on the property that can be accelerated into year one.

Zach Lemaster (22:40.106)
and depreciated that year. They usually come in between 30 to 35%. We’ve had some come in on commercial assets over 40%, but we usually use 30% as a general calculation. And this would be at 100% bonus depreciation, which may come back into play here. We’ll see. But a million dollar property, $300,000 of accelerated depreciation. That means you still have, and not talk about removing land just for simplistic purposes, you have $700,000 that are still normal depreciation. You take over the next 27 and a half years or 39 in commercial.

And that $300,000 you offset on your income from day one, right? This year. So that could save you, depending on your tax bracket, hundreds of thousands of dollars of actual taxes that you would otherwise pay to then reinvest, earn income on, earn interest on, and then buy more properties to run accelerated depreciation. That has been the biggest play that many people have used while we’ve had benefit from that from the 2017 tax act. And likely they’ll come back to bonus depreciation hopefully here soon. Um, as that bill is currently sitting in the Senate.

Um, but there’s many other tax benefits. Well, before I move on from cost seg, I mean, just being, just being conscious and working with a good real estate savvy CPA is, is so vitally important that way that so many people don’t fully understand all the tax benefits, they understand like, Oh, you get it right off mortgage interest. You get normal depreciation. Like great. My cashflow is like to your example, your cashflow is offset by, by just normal tax benefits and depreciation. It’s tax free cashflow, right? Um,

Trevor Oldham (23:46.585)
Hmm.

Zach Lemaster (24:04.106)
However, there’s a lot of other things, for example, and don’t quote me exactly on this, I’m not a CPA, but you know, if you’re, if you earn $150,000 or less, and I believe this is combined. Um, but if you’re in this income bracket or below it, you know, anyone can take passive losses against active income up to, I believe it’s $28,000. Um, so, I mean, if you earn a hundred K a year, you, you might want to do a cost sag to take, get 20, $28,000. Just that’s a huge tax benefits, right? That’s more than you can put into an IRA HSA. Um,

whatever the case. So that’s something to be conscious of. Also one creative thing we work with, uh, with investors that aren’t real estate professionals, Trevor, is that there’s a short-term loophole here. And I just want to say this first. All the things we’re talking about, this isn’t sneaky stuff. This isn’t a gray area with the IRS. This is stuff that IRS encourages us to do as real estate investors to stimulate the economy, right? We are incentivized because we’re creating jobs or creating housing for people, we’re stimulating the economy to do these things and there are encouraged to do this stuff. So this isn’t about.

Not like just trying to pay taxes or not sneaky ways, not to pay taxes. This is what the IRS wants us to do. Um, but there is a way where, Hey, if you’re not a real estate professional, let’s say you and your spouse are both, uh, employed full time. Um, and you still, you, you have a high income and you’re paying high taxes and you, and you want to use accelerated depreciation, you can buy a short term rental property and self manage it for the first year, because that’s the year that you put it into service.

So we have a lot of new construction properties that people will, and we teach you how to do that. We teach you how to furnish it, how to self manage it from a distance. Very easy to do, even though it may seem daunting, you can still run accelerated depreciation on and take that against your, your active income without RE Pro. Even if this is the first property you buy. And then the next year you can decide if you want to continue to self manage it, which a lot of our investors do because they find out it’s not that difficult or they can, um, you know, turn it over to management because after you, after you do the cost, like it doesn’t matter. So that’s one of many things. Um, 1031 exchange is also a huge.

Huge thing because depreciation is recapturable. When you sell property, you have to pay capital gains on it, which could be a huge chunk of your equity that you build. However, you can roll that forward. And we kind of use the term swap till you drop. And you alluded to this earlier, you can do 1031 exchanges forever. And then you pass it on to your kids, they get a step up basis and that depreciation is never recaptured. That’s another thing that we work with people on. We also have creative financing options. We had a doctor, investor of ours that…

Zach Lemaster (26:25.122)
Basically, you know, he was paying six figures in taxes every single year and it was painful. And so, and he had about, I think it was 150, 120, 150 to invest that year. And we showed him how he could use creative financing options to buy some investment properties where he got into those with, actually it was very little down. We have credit unions that will do 5% down loans on up to 5 investment properties. These are not primary residences. They’re true investment properties. This is a portfolio loan where you can buy multiple properties with 5% down.

We have a program where we will, we will actually pay the 5% down on select inventory. He still had some closing costs and things like that, but he was able to buy, um, a ton of properties with little to no money down. And he invested a portion of that 150 K that he had, um, to buy more properties where he was able to wipe out his entire tax liability for that year, saving hundreds of thousands of dollars that now he gets to reinvest by using some of these.

creative financing properties. These are all new construction properties in the Southeast that are growth areas. They have positive cashflow, but then, you know, they’ll also be positioned for strong appreciation, which he’ll get a tap into in the future as well. So I mean, there’s just so many things we could talk all day on this, but there’s so many different creative strategies that you can use to reduce your tax liability because that is taxes are the biggest expense we’re all going to pay in our lives. Right. And that is the easiest way to give yourself an immediate raise. And if you understand the time value of money, once you give money to Uncle Sam, it’s gone.

Trevor Oldham (27:42.969)
Thank you.

Zach Lemaster (27:51.03)
But if you can actually save that, whether it’s not paying taxes all or deferring those taxes, even a few years to actually go out and make other investments and earn an income and buy another property that’s again, appreciating this cash flowing that it has another depreciation schedule you can use. I mean, this stuff just snowballs and compounds. And so we, we learned that early on where it’s like, man, the more that all these strategies we can combine to actually own more rental real estate, you can amass a large portfolio in a relatively short period of time, just let real estate do what it does over time.

And, you know, build, build significant wealth. So I know I went off on a few tangents there, but hopefully I answered your question.

Trevor Oldham (28:25.353)
Yeah, that was perfect. And I was thinking through the creative financing aspect of it. And with that, so let’s say someone comes in, like you mentioned that doctor, they’re financing say 95% LTV. How does the, how does it work? Or how does it, how, how does the deal make sense? Is it, is it because it’s BTR? I’m just thinking like, you know, I’m looking at like commercial property. So you’re looking at a hundred UN multifamily, you know, you usually got to be at least 80, 80% LTV. Usually you want to be at least right now, maybe 60, 70%.

LTV just given the market conditions. Just curious how the numbers are able to work even if someone is doing like a 95% LTV on that type of deal. Again, is it because it is BTR or is it because you’re just, these deals that you’re sourcing out are just very good because you’ve been in the space for a long time.

Zach Lemaster (29:09.378)
Well, it all depends on, I mean, and that was just one of many examples that we have available to our clients to help them accomplish their goals, whatever those goals are, because they’re very individualistic for each person. Um, but for on that specific example, so there are credit unions in specific geographical locations. This is not nationwide. These are not Fannie Mae, Freddie Mac loans. These are portfolio lenders, um, that offer a 95% loan of value, um, on, on select new construction, single family residencies in select.

areas and mainly these are Southeast New Construction properties. And so what they’ll do, it’s a 10-year term, it’s a 30-year AM, and you still have to qualify for this, right? So you need to have a 720 credit minimum to at least get the full 95%. And you don’t have to do only 5% down. You could do 7%, 8% down, whatever the case is. In most of those cases, Trevor, you can imagine they’re probably not going to be positive cash flow or significant positive cash flow if you have a 95% loan on the property.

Someone that is doing that isn’t necessarily worried about cashflow. Uh, they’re worried if they want to maximize their capital and buy as much real estate as they possibly can and maximize their tax benefits. But again, you know, if you’re buying 95% LTV.

Um, and the property is negative $200 a month cashflow. Maybe it makes sense to put 8% down and have break even or slightly positive cashflow, it’s all deal dependent. Um, but at least you can stretch your capital further. And as I alluded to earlier, we have some programs where we will actually pay the 5% down so someone could come into, you know, a no money down type deal, or they have a few closing costs and alternatively, if someone had different goals where they wanted to maximize

cashflow, I mean, we could take that same 5% that we were going to pay for their down payment and we just reduce the purchase price. So on a $400,000 property, they get $20,000 of immediate equity. Maybe that makes more sense for someone in that scenario. And then they are cash flowing. They’re still putting the down payment down, but they get, they come into immediate equity where they can do cash out refi sooner, or maybe it makes sense to buy the interest rate down. We also have loans right now where, you know, 5% can be applied to buy the interest rate down to 3.99%.

Trevor Oldham (30:56.153)
Mm.

Zach Lemaster (31:16.698)
And then all of a sudden their property and that’s a 10 year arm. So it’s a fixed interest rate at 3.9% for 10 years, which is a really good arm by the way. But you know, that property is going to cashflow significantly more than if you had your current 7% or whatever it is on that. So my point is, is that it’s very deal dependent, but there’s many ways to skin the cat with the same deal, right? Depending on your goals. If you want to maximize cashflow, great. Let’s focus on that. If you want to come into immediate equity, let’s look at that. If you want to…

You know, stretch your capital as far as you can to own as much as you can and maximize tax benefits, then that’s the strategy we’re going to focus on with you, but it all depends on what position you’re in, what you want to accomplish, what your timeline is.

Trevor Oldham (31:56.589)
Yeah, I think that’s perfect going back to the strategy aspect of it because again, I know we’ve talked about it before, but some folks maybe they just want to do more pure cash flow play. Maybe some folks want more of the tax strategy play. Some folks maybe want equity play. And I think for those listening, you really got to figure out what do you want to do on your own. I think that was a big learning curve for me is I was like, oh, I want to invest in this asset class. I want to invest in this property. Then all of a sudden I’m in a couple cash flow deals. I’m in a couple equity deals. And now I’m like…

I kind of wish I was just was all in cashflow. And it comes with learning experience, anything like that. But you really got to ask yourself, you know, what point? I found for me, it was like, what point? Or what do I want to achieve in my life? And for me, it was like, I want to achieve financial freedom. I want to have the cashflow coming in to just cover my monthly expenses and give me the choice. Hey, if I want to keep running my business, I can. Or if I want to do something else, I also have that option too, where the equity play could get me there, but there’s not going to be that immediate cashflow play, but I could get a higher return on the equity play just because there’s…

more risk, but then there’s going to be more rewards. You just got to think through everything and the different strategies like Zach mentioned out there. Everything out there, it sounds like his company is going to be deal by deal specific. It’s going to be specific to the individual and what you’re looking to achieve. So I think that was great. Really great going over that. But I’m curious, how has it been in the BTR space and going out there in the new construction space? I know I’m not so much now, but I know early on in the pandemic, it was like the cost of lumber was like…

through the roof, I think it’s come back down, come back down to earth now, but just curious how that transition has been more so from the properties maybe you were going out there and buying early on where again, let’s just say they were in the Midwest, they were just, they’re already built, maybe they’re built 70s, 80s, whatnot. And then now you’re going out and building out these new houses. How’s that sort of process been for your company moving from one sort of area into this other area within real estate?

Zach Lemaster (33:46.518)
Certainly. When you think about if anyone’s heard of turnkey before explored this or maybe even invested in turnkey, kind of the traditional, I guess, thought on turnkey or where most turnkey operators are focusing is exactly that the Midwestern property that’s 120,000, 150,000. It’s yeah, 1960, 70 house has been renovated and that’s, you know, that’s a good bread and butter rental property. It’s low capital to come in and buy that and it can provide good cashflow. It’s probably not going to be.

Um, in a market that’s appreciating dramatically over time and you will have, you know, maybe lower quality tenants as well as more maintenance with that property. That’s where our company started focusing on those. And we still do have those, those opportunities for people that are looking for a lower barrier of entry to, to buy properties and want to maximize cashflow. But about 70% of what we do is, is built to rent new construction, single family and small multifamily, mainly in the Southeast where there’s growth markets. And just over time, I’ve kind of come to realize that new construction,

will perform better over time. Not only with reduced maintenance, you’re in better class areas, attract better quality tenants. They are more expensive, so it requires more money down our average. You know, Midwestern property, 120, 150,000 for your three, four bedroom workforce housing. In the Southeast, you’re probably 250 to 300,000 for that same single family, but it’s a brand new built house in a class area, quality tenants that stay longer, they perform better. There’s more consistency with that, more predictability.

That’s what we like. But the big benefit is over time, new construction and growth areas, you’re going to have, even though the cashflow may be less, like if you’re comparing a Midwestern deal to a brand new construction, the new construction is more expensive. That rent to price ratio is probably a little bit lower, so the cashflow may not look as attractive. You may have a 6% cash on cash return, whereas you may have a 9% or 10% in the Midwest, right? So on the surface pro forma day one, that lower price property may look better.

The built rent and the new construction will perform better. They’ll have better appreciation and home prices, better appreciation rents. I mean, a lot of the markets, even over the past two years, which has been kind of a stagnant market in, or a little volatile market in a lot of places of the country, I mean, the areas that we focus on in Florida, Texas, Alabama, Carolinas, I mean, these are areas where we’re still seeing double digit appreciation, both the rents and home prices over time, just because it’s supply and demand, these are areas where the population is moving, there’s an under supply of housing.

Zach Lemaster (36:10.242)
And there’s demand to keep the houses rented and buyers as well. So, I mean, the common strategy would be someone that buys a property through a network they hold onto for four to five years, they let it appreciate the tenant pays a loan down a little bit. They have enough equity where they can 1031 exchange it and buy two or three other properties just by letting real estate do what it does. So it also helps them with their trajectory over time scale up quicker. Um, so we like new construction for all those reasons and man, it is just less tenant issues. It’s just less, it’s less noise. Um,

Trevor Oldham (36:37.121)
Thank you.

Zach Lemaster (36:40.042)
Yeah, but the construction market has been crazy. It’s, it’s been tough, right? I mean, financing has been tough, especially as, you know, maybe we had some construction loans that were at 3% that are now at 5% or 7% or some other loans that are up at 11% construction. So it’s like, you know, the construction market labor is limited materials. We still see some lingering things from COVID. So it’s been a tough market, but I think what served us well, um, and why I like working with investors, what’s allowed us to stay in business while a lot of builders struggled.

in this industry over the past three to five years is the simple fact that like we have consistent flow of business. We work with investors where they are consistently instead of the retail market where someone’s buying one house every seven years, you know, investors, most of our investors buying multiple properties both year one and year after year to scale their portfolio. And we focus on the real estate fundamentals. We want to be in growth areas want to be below the median house price point, which is, you know, give or take $400,000 across the US. You know, we try to be.

well below that so we have the highest pool for buyers, tenants, etc. and be in areas where, you know, we can still do well, even with fluctuating construction prices and all the stuff we all have to deal with.

Trevor Oldham (37:52.617)
Yeah, I really like that aspect of going into the new to you know, the new build. And like you mentioned for me, it almost seems like there’s going to be less headaches because you would think if you’re going along lines more class A than your class C property where yeah, class C. Yeah, it’s going to it’s going to look better. The price point maybe is $125,000 or the class A, you know, new build. I mean, not even class A, but just a very high end class B great, great neighborhood. Maybe you’re looking at $350,000, $400,000 and you look, oh, have I put

20% down on this on my cashflow the same as I do on this $150,000 property. But at the same point, there’s a lot less you have to deal with. There’s a lot less maintenance, there’s a lot less repairs. And then just overall, probably the tenant base, usually the folks I would imagine are moving into the single family homes or the built to rent space. Maybe they do have a family, they have good jobs, they have an overall higher income. And I think there’s studies out there where it’s just, it’s simple, folks that own a house typically are…

earn way more in their lifetime than those folks that just rent their entire lifetime. So I find that typically you would hope the folks that make more money are going to take better care of the property and then they have a nice single family home, the property is nice, they want to keep it that way, not to say that every tenant would be like that, but hopefully the majority of them are. Hopefully everyone’s respectful of the property that they’re living in, whether they’re renting it or whether it’s an apartment complex or whether it’s a single family home that they are going out there and renting out.

Zach Lemaster (39:16.074)
Well, if you have a tenant that’s paying $2,500 a month and a new construction, $300,000 house, that is a higher tenant demographic than someone that’s paying $1,200 a month. You know, now granted, you know, there could be a difference in wages across the country in different parts and, um, cost of living and things like that, but generally speaking, as you charge more for rent, you do get better quality tenants. But to your earlier point, Trevor, my advice to everyone, when you’re evaluating real estate, whether you’re looking at turnkey or otherwise. Don’t.

Trevor Oldham (39:25.098)
Okay.

Zach Lemaster (39:43.042)
Fall into the trap of only looking at a pro forma that is year one analysis, right? A year one analysis is a snapshot near one and on our website, we actually have the wealth tracker as a free calculator that you can track your portfolio performance, not just one property, but multiple properties, but most importantly, you can forward project, you can look at whatever variables you want to punch in for appreciation and rent growth and amortization.

Uh, you can look forward thinking and say five, 10 years, if I buy X amount of properties, like this is where I’m going to be both cashflow and net worth wise. But I think that’s a really, a big thing that we learned over time is that we, early on, we just focused on cashflow, you know, year one projections, but you really need to understand how real estate works for you over time. Rents go up over time. So even though you’re cash on cash, maybe five, 6% today, your mortgage doesn’t change next year and next year, now the expenses would potentially less on new construction, but.

You know, your rent’s going up at our average rent increase every year is 6%. That’s double the national average. That’s because we’re in demand areas. And so looking, being forward, thinking about where is this property going to be in five or 10 years, both from an equity standpoint, as well as cashflow. Like that’s, that’s really important. And I think that will help you reverse engineer your buying decisions now based, based on your goals.

Trevor Oldham (40:57.509)
Yeah, I think that’s awesome. Really looking at like the long term picture instead of just coming in and thinking like, okay, yeah, it’s going to cash flow more, maybe cash flows 250 bucks instead of 150 bucks, year one. So I really I think that’s great that you explained that. But Zach, I just want to say I really enjoyed our interview today. And for our audience out there, where can they learn more about your company if they are interested in invested? Can they book a consultation call with your team? How does that look? And where should they go to?

Zach Lemaster (41:23.594)
Absolutely. I drive everyone to our website. That’s rent to retirement.com rent to retirement.com. Um, we have a lot of resources on there. We have our own podcasts and YouTube channel. We put out a lot of information outside of just turnkey investing, right? Market data, tools and resources, lending options. Our goal is to add value to every single person, uh, that we come in contact with. Again, we don’t charge investors anything. We make our money through building and selling houses. And our goal is to ensure that our investors meet their

meet their expectations and have a good experience. So they come back to invest. So, and if you’re listening to this in the car, you can text REI to 33777. But yeah, we’d be happy to connect with you and have a consultation, see how we can add value to your investing strategy. Uh, regardless if you’re looking at turnkey or not, but be happy to discuss some of the creative financing options, bill to rent market data that we have. We were very passionate about real estate. So.

Trevor Oldham (42:16.87)
I’ll make sure to include that in today’s episode of Show Notes. And Zach, again, thank you so much for coming on to the show.

Zach Lemaster (42:22.338)
Thanks so much, Trevor.